Question

Blue Ridge Marketing Inc. manufactures two products, A and B. Presently, the company uses a single plantwide factory overhead rate for allocating overhead to products. However, management is considering moving to a multiple department rate system for allocating overhead. The following table presents information about estimated overhead and direct labor hours.

	Overhead		Direct Labor Hours (dlh)			Product
						A		B
Painting Dept.	$529,209		12,700	dlh		15	dlh	2	dlh
Finishing Dept.	69,864		8,200			5		18
Totals	$599,073		20,900	dlh		20	dlh	20	dlh

The overhead from both production departments allocated to each unit of Product A if Blue Ridge Marketing Inc. uses the multiple production department factory overhead rate method is

a.$667.65 per unit

b.$41.67 per unit

c.$8.52 per unit

d.$236.70 per unit

Answer 1

Computation of departmental Overhead rate
	painting	Finishing
Manufacturing Overhead Cost	$5,29,209	$69,864
/ Direct Labor hours	12700	8200
Departmental Overhead rate	$41.67	$8.52

Allocation of Overhead to each unit of Product A
	painting	Finishing
Direct labor hours	15	5
* Departmental Overhead rate	$41.67	$8.52
Allocated Overhead	$625.05	$42.60
Total Overhead Applied to each units of A = 625.05+42.60 = $667.65

Hence option "a" is correct.